7 gut checks before the stock market’s opening bell

By Barbara Kollmeyer

All systems are go…for now

Good morning.

Wednesday’s Fed statement gave no big hint of any tapering plans, but some investors seem to be drawing their own conclusions and stock futures are following global markets higher (helped in part by China data and GDP afterglow). The ‘bright-siders’ say a September bond-buying pullback may now not be such a sure thing.

Maybe. Among those Thursday-morning quarterbackers is Pimco’s Mohamed El-Erian. He says the Fed is likely holding back on addressing hot-button issues until September, when they hope investor apprehension “will be countered by additional data releases confirming that the U.S. economy is approaching ‘escape velocity’.” (For all you non-rocket scientists, that means a level at which a recovery is self-sustaining.) Still, September’s meeting will be tricky, he warns.

We’re not done with central banks. After no change on policy, investors are expected to hang on every word at an ECB press conference (underway now, check out live blog here) with Draghi to see how he feels about those “green shoots,” like today’s PMI. Advice for Mr. Whatever It Takes? “Don’t get cocky”. The BOE, run by Carney the rock star, also left policy unchanged.

Are stocks really a go, or would you like five reasons to hate the bull market? Pragmatic Capitalism adds to worrywartism by pointing to Merrill Lynch data that shows institutional clients and hedge funds have been net sellers of equities in the last five weeks, and Elliot Management is also going all gloomy.

Meanwhile, BofA Merrill Lynch’s Michael Hartnett points out that since the lows of 2009, the U.S. economy has grown by $1.3 trillion, while the stock market has grown by $12 trillion. “Policy, positioning and profits best explain the seeming disconnect between Wall Street and Main Street,” he says, adding that “when the real economy stands up, the central bankers will start to stand down.”

The economy:After Wednesday, who could ask for anything more? But more ye shall receive. Jobless claims fell 19,000 to 326,000, the lowest level since January 2008. Still to come, Markit’s final PMI read came in at 53.7 for July, better than an initial reading, and the Institute for Supply Management will follow with its own report at 10 a.m. July monthly auto sales are also on tap, which could put Ford
/quotes/zigman/264304/quotes/nls/fF and GM
/quotes/zigman/1466682/quotes/nls/gmGM in the spotlight. This isn’t even the end of it, as Friday’s jobs data still loom.

J.C. Penney
/quotes/zigman/237947/quotes/nls/jcpJCP is up 6% in premarket. The company is denying denying a prior-day report over new credit concerns that sunk shares 10% a day prior. But Citi was raining on the parade, cutting shares to sell from neutral and its price target to $11 from $20. “We do not believe that JCP has made progress in stabilizing the business in 2Q13, and we see no evidence of a turnaround in the works,” says analyst Deborah Weinswig.

The chart of the day:History may be ready to repeat itself. Check out the below chart from Kimble Charting Solutions, which makes the case that since a 1974 low for the Dow industrials
/quotes/zigman/627449DJIA, when Richard Nixon was impeached, key highs and lows have rolled around every 13 years. If this cycle repeats, then another historical price point is due this year. Kimble noted in April that the pattern was suggesting the Dow could hit 16,000 (see that chart here). The Dow is now up 900 points since that post and at 15,499.54, that 16K level doesn’t look too far off the horizon.

Call of the day: Check your enthusiasm at the door over Facebook
/quotes/zigman/9962609/quotes/nls/fbFB, says Aswath Damordaran, professor at NYU’s Stern School of Business, in his latest blog. The professor has had a few swipes at trying to value the social media group, which briefly hit its IPO price of $38 in premarket trading on Wednesday. He says history is repeating itself here.

“Last August, it was my belief that markets were overreacting to limited information in an earnings report from a young company and pushing its price down too much. Today, I believe that the markets are overreacting again to limited news from an earnings report and pushing the price up too much.”

Damordaran, who values Facebook at about $27.65 a share, says he bought last August when the stock was trading below his estimate of its intrinsic value. For those who don’t own it, he doesn’t recommend selling short, though, as that momentum game that went against Facebook last year could reverse. Some investors could be “drawn into the stock if it crests the $38 IPO price, though there is really no economic or value significance around the number.” He says he’ll keep tracking Facebook because there’s a good chance it could fall out of favor with investors and get back on his buy list.

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